ICICI Lombard faces multiple challenges

As such, the Motor Own Damage (OD) insurance segment has been a pain point for the insurer amid stiff competition, especially in the passenger vehicle segment.

However, there were signs of improvement in Q4. “ICICI Lombard has reported marginal improvement in claims ratio in motor OD business from 73-74% to 69.4% over the past three quarters,” said analysts at Kotak Institutional Equities.

In the earnings call, the management of ICICI Lombard said that the overall competitive intensity in the industry has eased slightly. But investors need to keep a close eye on how the competition pans out going forward. “We understand that large unlisted players remain more aggressive, even as IPO-bound new-age players have been less aggressive; “In our view, the former may not remain irrational for long,” said analysts at Kotak.

On the other hand, the health and other insurance sectors performed well in the fourth quarter. Overall, gross direct premium income (GDPI), a key metric for ICICI Lombard, grew by nearly 7% in the fourth quarter. However, it lagged behind industry growth of 17%. GDPI was partly impacted by some selling and a higher base in March. Analysts at Jefferies India said the adjusted growth was 12-13 per cent.

Moreover, the high level of combined ratio of ICICI Lombard in the fourth quarter remains a matter of concern. The ratio stood at 104.2% in the previous quarter as against 104.4% in the third quarter. A combined ratio of more than 100% indicates that an insurance company is paying more for its claims than for its premiums. ICICI Lombard sold a portion of its motor insurance underwriting pool to earn commission, resulting in one-time transactions in the motor segment in Q4. “Despite this sale, the combined ratio was high, and the company made higher-than-expected underwriting losses in the fourth quarter,” said Madhukar Ladha, director, Nuwama Institutional Equities.

Nevertheless, it is encouraging that the management of ICICI Lombard is confident of bringing its combined ratio to 102% by FY25. However, some believe that this goal is ambitious and that there are adverse conditions to achieve it. “External factors such as competition, primarily in the motor segment and the potential negative impact of regulatory changes, including the recent implementation of the governance on management (EoM) framework and other anticipated changes such as the overall license structure, hurt the industry’s combined ratio going forward You can,” said Ladha.

Note that the commercial lines segment is likely to face pressure in the coming quarters due to price hikes by reinsurers, which could impact profitability in this segment.

The management of ICICI Lombard said that reinsurance rates have increased by 45-60%.

Shares of ICICI Lombard fell nearly 5% on Wednesday, taking losses in the past one year to nearly 20%, tracking weak results and various challenges ahead.

Agreed, the valuations are not very high. Bloomberg data shows that the stock trades at around 27 times estimated earnings for FY24. “The two key issues to be monitored are the need for ICICI Bank to reduce stake from 48% to 30% by September 24; And succession at the CEO level as the indicative norms may require the CEO to retire in May-24 on completion of 15 years,” said analysts at Jefferies.